Inverted-U Aggregate Investment Curves in a Dynamic Game of Advertising
Quaderni - Working Paper DSE N° 954
21 Pages Posted: 10 Jul 2014
Date Written: July 9, 2014
We revisit the relationship between market power and firms' investment incentives in a noncooperative differential oligopoly game in which firms sell differentiated goods and invest in advertising to increase the brand equity of their respective goods. The feedback equilibrium obtains under open-loop rules, and aggregate expenditure on goodwill takes an inverted-U shape under both Cournot and Bertrand behaviour, provided product differentiation is sufficiently high. Total industry expenditure is higher under Cournot competition.
Keywords: Goodwill, Oligopoly, Advertising, Differential games, Schumpeterian hypothesis
JEL Classification: C73, L13, M37
Suggested Citation: Suggested Citation